Full Form Of GDR, Global Depositary Receipts, Definition, Features and Example

GDR is an abbreviation for Global Depositary Receipts. It is a form of bank certificate that functions as stock in a foreign company. It is a method for a corporation to raise stock from the worldwide market.

What is GDR?

Global Depository Receipts (GDR) is a form of a bill of exchange issued by a foreign depository bank to facilitate the trading of a company's shares on an international market.

GDR is issued by a depository bank situated abroad, or in other words, GDR is issued by a depository bank located beyond the company's domestic limits to inhabitants of that nation.

The GDR is mostly traded on the European market. GDR issuance is one of the most effective strategies to raise equity from abroad.

Example Of GDR

A firm based in India that wishes to have its stock listed on the French Stock Exchange will enter into an arrangement with a French depository bank, which will then issue shares to French people after receiving clearance from the company's domestic custodian.

Characteristics Of GDR

The following are the characteristics of GDR-

• It is a tradable instrument that may be freely exchanged like any other securities instrument.
• Indian enterprises with a good three-year financial track record are easily granted access to global financial markets through the use of a GDR. Nevertheless, approvals from the Foreign Investment Promotion Board (FIPB) and the Ministry of Finance are necessary.
• GDRs are offered to investors across the country because they may be denominated in a variety of freely convertible currencies.
• A GDR can be issued in any foreign currency, but the underlying shares must be denominated in the issuer's home currency.
• The holder is entitled to a dividend and bonus based on the value of the underlying shares.
• The investor can use a local custodian to convert the GDR into equity shares and sell the shares referred to in the GDR. This provision takes effect 45 days after it is published.
•  Under GDR, the issuing firm does all of its business with a single entity.

Disadvantages of GDR

Here are some disadvantages of GDR-

• Administrative fees for GDRs may be considerable.
• Dividend payments are made after deducting currency translation costs and international taxes.
• The depositary bank withholds the amount required to meet expenditures and foreign taxes automatically.
• To avoid double taxation on realised capital gains, U.S. investors may need to seek a credit from the Federal Revenue Service (IRS) or a refund from the foreign government's taxing body.
• GDRs have a low liquidity risk, making them difficult to sell.
• They may face currency risk as well as political risk in addition to liquidity risk.
• As a result, the value of the GDR may change in response to actual events in the foreign country, such as a recession, financial collapse, or political turmoil.

Differentiation Between ADR and GDR

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